A little on options from my point of view.
First let's make sure everyone understands pricing and stuff, i will take SRT and it's options as an example as that is the only one i have held for more the one week.
So SRT i'm looking to buy, ok i have done my research, it's got few things going for it and they have options listed.
SP also know as heads is trading at 0.021
SRTOA is trading at o.o15 with an expiry in December 2017, my next step is to find out the strike price on the options, i always just call comsec and the tell me, in this case the strike price is is 0.008.
What that means is if i buy the options at o.o15, i have until December 2017 to convert them into heads but to do so i would need to pay the company before the expiry date 0.008c per share.
So if we add the strike price on the current trading price we get 0.023c
The heads are trading at 0.021 so the options are in the money which just means that they are a good chance of being taken up buy buyers like my self.
Now here is the thing, if the SP is trading at 0.021 and the options would eventually cost me 0.023 why not just by the heads as the are cheaper then the options..
This is why, let's say i wanted to invest only $ 10k but i really like SRT and think it has a really good chance to do better latter on.
At $10 k the heads would buy me 476,190 units currently
The options would by me 666,666 units at $10 k invested currently
If it the SP goes to my 10c target at some stage in the next year on more news and so on, my investment on $10k would look like this:
SP value $47,190.00
Mines 10k, $ 37,190.00 return
Options value $66,666.00 worst case
Mines 10k, add 0.008c on 666666 units conversion/strike $5333 = $63,333.00 return
So now you can see that the options would give my 70.29% more value/return on my investment in the longer run, that is why i would theoretically pay little extra for them now. There is always the good chance that the options will run at lot higher premium then the heads as well so it can be more of a return and at that stage i may just sell on market rather then holding out.
You can buy and sell options just the same as you buy heads, there is no contract, you don't have to hold them forever. You can request a form from the company to convert you holdings but they always send them out a few months before the expiry date.
Generally a company will create options as a milestone so to speak, since they may get converted to heads at some stage the dilute the overall register of shares and adds money to the company's balance sheet. So there is an insensitive for the company to make sure the share price goes higher but most options i have seen don't get converted. If SRT's acquisition came out and it was all smoke and mirrors, the SP goes back to 1c then you can bet that the share price will tumble & the buy depth of the options will look like a ghost town . This just means that who ever bought options will loses there money and the company gets nothing.
Please don't think i'm putting SRT down, i own SRTOA's and i'm just using them as an example.
I don't recommend trading them unless you know how to trade, i hardly ever trade them. If we look at some recent examples MPJO and XTVO, give the fact that they have a long term value and less units available then heads, they can make quick money but also lose very quickly. I only buy them if I'm investing and see a long term potential.
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